Apple Inc.

Heather Hawkins. August 13, 2012 Professor Barnhill

Apple’s Success
Heather Hawkins
Ottawa University

Introduction

Apple has evolved since the start of their company in the early 70’s. The company has successfully been able to develop a strong hold to being a competitor and innovator. Apple Inc. has been able to gain widespread success due to their ability to create innovative products. Apple stands out in the market because they know what the consumers want and then executes their strategies. The companies’ effective business strategies have allowed them to gain large revenue growth. Apple has been able to coordinate and integrate pricing and high quality products. Apple Inc. uses the highest quality materials and industrial design on their carefully crafted products even though they are mass produced. The company is able to sell a large amount of products because the buyer’s reservation price matches the pricing of their products. “The company says it’s sold 365 million digital devices over the last five years — 50 million last quarter alone — and is currently averaging nearly $4 billion in monthly profit” (DeCarlo, pg. 2, 2011). Apple Inc. marketing strategies has allowed them to generate a large amount of revenue.

Apple Inc. superb product design According to Harris, “one company immediately springs to mind as constantly setting the benchmark, whether in hardware or software, that is Apple”. Apple offers a clean design with fun and updated features. Apple periodically improves their business by continually to enhance their product’s performance while improving offering. It constantly faces challenges in updating their products to consumers who anticipate product improvements. Product design, specifically upgradable architecture of a product can be a valuable approach for marketers to alleviate consumer concerns about a product. “Innovating firms in several industries offer temporally improving products to attain higher margin and renewed sales for their durable goods” (Krishnan, pg. 2040, 2011). Apple applies this by constantly updating their mobile and music devices. Apple improves their products or devices by improving particular areas to help maintain their consumer base. According to Harris, “in deciding the design for the Apple products, they wanted to keep the display as simple and as pure and as uncluttered as possible”. The design team at Apple is constantly thinking of a new ways to advance their products. Ive, the man behind Apple’s design sets the stage for beautiful ideas to develop with the products. Apple has been able to develop iconic products such as the colorful iMac to the iPod Nano. “Apple has created and maintained a choke hold on the digital music market, and analysts say it is poised for its biggest share gains in the PC market for years” (Burrows, pg. 6, 2006). According to Burrows, “Apple’s team work closely and intensely with engineers, marketers, and even outside manufacturing contractors in Asia who actually build the products”. Their team are leading innovators and in the production process. The design group was able to originally able to figure out what types of layers would bring depth and character to the iPod. “Apple tries very genuinely to design products that solve problems, not just self-expression” (Burrows, pg. 8, 2006). The company tries not to make a lot of products and devices so they can focus on every detail. They also try to figure out how each piece is made. Apple’s devices define art, science, and character.
Apple’s Production Process Apple must stay current with the technological changes to maintain growth in their market share. As their products mature, Apple extends the needs and wants from their consumers by providing additional features. The company is also at a growth stage because they are currently increasing their production while keeping the quality.
Apple’s Successful Price Strategy
Apple’s target group is a younger audience. “The iPhone user base consists mainly of young early adopters: about 75% of whom are previous Apple customers” (Sliwinska, pg. 5, 2007). Apple uses skimming as one of their pricing strategy. Skimming is referred to as “selling a product at a high price; to sacrifice sales to gain profits” (Sliwinska, pg. 5, 2007). Skimming is used to reimburse the cost for investment. The strategy is often used to target early users of a product or service because they are not as concerned with the price as compared to others. This strategy is only incorporated for a short period of time to recover most of the investment towards the products. Pricing discrimination is another pricing strategy Apple incorporates. “It charges customers different price for the same product or service” (Sliwinska, pg. 7, 2007). The seller charges customers different prices for their products based on their attributes. According to Sliwinska, “price discrimination is only feasible under certain conditions: 1.) companies have short run market power; 2.) consumers can be segmented either directly or indirectly, 3.) arbitrage across differently priced goods is feasible” (Sliwinska, pg. 7, 2007). Apple partially participates in price discrimination because they will charge people different prices based on what they desire to pay. Apple participates in price discrimination because they can gain a lot of profits. Apple can also build a wide customer base for their products. “Apple reduced $200 from the original price of the iPhone two months after the release due to customer complaints” (Sliwinska, pg. 7, 2007). Apple develops different versions of products based on the needs of their customers. In addition to offering skimming and price discrimination, Apple also applies vertical bundling. They use vertical bundling by linking the use of an iPod to the iTunes store. With the iPhone, Apple has tried to connect users to AT&T in the U.S., Orange in France, T-Mobile in Germany and O2 in the UK. Sales rates have shown that prices for iPhones in European countries were too high as compared to other smartphones which are offered at lower prices. Apple will issue a new version of the iPhone, which is expected to help with iPhone sales. Apple also participates in bundling where the seller combines two or more products and sells them as one at a reduced price. This can result in a lot of savings for the buyer and higher profits for the seller. Apple will sell their hardware at a reduced price because they know the consumer will pay for the additional things that come with it. Apple also incorporates reference pricing in their pricing strategy. Apple benefits from this strategy by selling their products at various prices. A buyer would be willing to pay for products with better attributes after comparing it with a product with lower priced versions with fewer features.
The competitive advantage from Apple Inc. The devices and products sold by Apple provide a horizontal integration which allows them to be ahead of their competitor. Apple incorporates vertical integration by letting their consumers feel connected with their products. The manufacturing hardware allows Apple to have control over the design of their devices and quality. The content offered such as Itunes, allows Apple to have a competitive advantage in that area as well. The ability to have their devices sold in the stores allows Apple to have their products available to the consumers. “Apple enjoys a favorable competitive environment provided by the user dependence on iOS which enables it to earn incremental earnings by offering all associated devices” (Apple Inc., pg. 5, 2012). Between 2004 and 2005, the “sale of the iPod increased over six folds indicating the massive success of iPod” (Apple Inc., pg. 5, 2012). “In 2011, the estimates indicate that Apple iPod had over 75% market share and about 300 Million iPods were sold since its launch” (Apple Inc., pg. 5, 2012). The iPhone came after the launch of iPod which accounted for most of their market share. “Apple sold one million of its new 3G iPhones in the first three days of its debut while it took the first iPhone 74 days to sell a million” (Apple Inc., pg. 5, 2012). Apple sold most of their iPhone in 2011 with the record sale of “20.3 million” (Apple Inc., pg. 5, 2012). The success of their products allowed Apple to gain “75% of the mobile phone industry’s total profits” (Apple Inc., pg. 5, 2012). Apple was able to gain a lot of sales from the iPad as well. “Apple released the first iPad in 2010 and sold 300,000 units on the first day and sold three million in 80 days” (Apple Inc., pg. 6, 2012). The carefully executed launch of each product has led to their growth in the industry. The success of their products was also due to premium pricing which allowed the company to collect a lot of profit. Brand positioning accompanied the launch of their products which has led to their success. The growth of their revenue has been due to their ability to correctly price their products. The success of their products has allowed Apple to dominate the market against their competitors. For instance, “Apple’s revenues grew 66% in FY2011 and the company grew at a CAGR of 59% during FY2009–11” (Apple Inc., pg. 6, 2012). In comparison, “Microsoft’s revenues increased by 11.9% in FY2011 it grew its revenues at a CAGR of 9% during FY2009–11” (Apple Inc., pg. 6, 2012).
Marketing Strategies of Apple Inc.
Apple Inc. focuses on image and quality due to the competition in the market. Apple has created specialty stores to help maintain revenue for their company. There are currently over 100 Apple stores in the U.S. “Apple stores were on track to generate $1.2 billion in annual sales, compared to Apple’s $8.3 billion fiscal revenue” (Lam, pg. 25, 2005). Apple has also positioned them as a cool device. Their computers are also sleek and free of viruses. Apple has positioned their company in a correct way to control their perception from their consumers. The company has also targeted their products to a high-end consumer based on their pricing. Their website has also allowed Apple to develop a strong position in the market. The website is very informative, providing customers with information regarding their products. Also, their website includes a blog where consumers can chat and provide valuable information.

Apple’s Brand Identity Apple has established brand identity by providing their consumers with good quality high end products. The decision process among consumers allows more steps because of the pricing of their products. Apple has built a “strong reputation and brand name becoming one of the most high end brands in the business world” (Lam, pg. 29, 2005). The high price of their products automatically guarantees quality devices. “This is a psychological approach that Apple has used, and has incorporated it within their business model” (Lam, pg. 29, 2005).
Participation of New Markets A lot of current businesses are participating into new markets to help stay ahead of their competitors. New markets can give companies new opportunities and ideas. Apple has ventured to the market of music by producing the iPod and iTunes Music Store. The company’s participation in the music market caused them to distance themselves from the computer market. Apple needs to continue to provide “quality hardware and great marketing strategies, to successfully diversify and enter new markets” (Lam, pg. 30, 2005).

Conclusion
Apple has expanded dramatically since the early development of their company. The company has been able to stay ahead of their competitors due to their carefully executed marketing strategies. Their marketing strategies include: careful price planning, competitive advantage, and brand identity. These marketing strategies have allowed Apple to maintain a large consumer base. The company will be able to maintain their strong lead among other companies if these marketing strategies are continually incorporated.

References
Apple Inc. SWOT Analysis. (2012). Apple Computer, Inc. SWOT Analysis, 1-9.
Burrows, P. (2006). THE MAN BEHIND APPLE 'S DESIGN MAGIC. Businessweek, (4002), 26-33.
Harris, A. (2009). Design at the very core. Engineering & Technology, 4(16), 60-62.
Krishnan, V., & Ramachandran, K. (2011). Integrated Product Architecture and Pricing for managing Sequential Innovation. Management Science, 57(11), 2040-2053. doi:10.1287/mnsc.1110.1391
O 'Grady, J. D. (2009). Apple Inc. Greenwood Press.
Olivia, Lam. (2005). Apple Computers. www.bmak.com/Ray/AppleComputers.pdf
Sliwinska, Dorothy. (2007). Apple’s Pricing Strategy. http://christophe.benavent.free.fr/IMG/pdf/AINI_2008_Apple_s_Pricing_Strategy.pdf

References: Apple Inc. SWOT Analysis. (2012). Apple Computer, Inc. SWOT Analysis, 1-9. Burrows, P. (2006). THE MAN BEHIND APPLE 'S DESIGN MAGIC. Businessweek, (4002), 26-33. Harris, A. (2009). Design at the very core. Engineering & Technology, 4(16), 60-62. Krishnan, V., & Ramachandran, K. (2011). Integrated Product Architecture and Pricing for managing Sequential Innovation. Management Science, 57(11), 2040-2053. doi:10.1287/mnsc.1110.1391 O 'Grady, J. D. (2009). Apple Inc. Greenwood Press. Olivia, Lam. (2005). Apple Computers. www.bmak.com/Ray/AppleComputers.pdf Sliwinska, Dorothy. (2007). Apple’s Pricing Strategy. http://christophe.benavent.free.fr/IMG/pdf/AINI_2008_Apple_s_Pricing_Strategy.pdf